Yahoo 10-Q Filing Shows It Has to Hug It Out With Microsoft on Global Search

I love a good public company regulatory filing, because it yields all kinds of little golden nuggets of news that get hidden under a pile of dull and mostly accounting related information.

For example, in its 10-Q filing with the Securities and Exchange Commission today, Yahoo revealed that it had apparently exhausted its legal efforts to delay the transition of paid search in Taiwan and Hong Kong, as part of its long-term partnership deal with Microsoft.

This was part of a process that started in September, when Yahoo told Microsoft that it wanted to slow down the transition to its search technology there, as had been done in the U.S. and elsewhere.

Microsoft, of course, disagreed and the pair went into emergency arbitration, where Yahoo lost. So, the company then went to the United States District Court for the Southern District of New York to overturn the arbitrator’s award, where it lost again.

Not to be deterred by all this legal losery by general counsel Ron Bell, Yahoo then showed up at the United States Court of Appeals for the Second Circuit, which initially agreed to a stay of the order to move forward with the search transition.

Then five days ago — it’s amazing Yahoo did not call and tell me — the Second Circuit, the company noted, “denied the continuation of the stay pending appeal.”

After all that doubtlessly pricey legal maneuvering, Yahoo said that it is now “working with Microsoft on a transition schedule.”

In other words, despite leaking all over the place that CEO Marissa Mayer wanted to get out of the search partnership with Microsoft (and she still might want to), Yahoo’s not getting out of the rollout globally. Taiwan and Hong Kong were the last two markets left worldwide.

Yet!

Those inside Microsoft said they have been perplexed by Yahoo’s actions, especially in the fervent legal efforts. “There are problems in the search relationship, of course but this was just bizarre,” said one person.

More on that interesting relationship, especially as Microsoft picks its CEO (which was Mayer’s excuse to delay in Taiwan and Hong Kong, according to filings), soon. Meanwhile, FYI, Google still dominates search across the world, in part due to Mayer’s work while an exec there.

Until then, here’s the pertinent part of the Yahoo 10-Q:

In September 2013, the Company advised Microsoft that we were delaying the transition of paid search in Taiwan and Hong Kong. Microsoft disagreed with the delay and initiated an emergency arbitration under the Search Agreement. The arbitrator enjoined the Company from continuing the delay and directed the Company to complete the transition of Taiwan and Hong Kong in October and November, respectively. The Company sought to vacate the arbitrator’s award in the United States District Court for the Southern District of New York, but the District Court issued an order denying the Company’s petition to vacate. The Company then filed a notice of appeal to the United States Court of Appeals for the Second Circuit, together with a motion to stay enforcement of the District Court’s order pending the appeal. The Second Circuit granted a temporary stay of enforcement of the District Court’s order, but on November 7, 2013, denied the continuation of the stay pending appeal. The Company is working with Microsoft on a transition schedule.

Since I am gold-mining, here’s another nugget from the document that has nothing to do with search, but how much Yahoo paid for its long-term lease for four floors in the former New York Times building to bring together its hundreds of employees there.

A lot!

From Yahoo’s filing: “In May 2013, we entered into a 12 year operating lease agreement for four floors of the former New York Times building in New York City with a total expected minimum lease commitment of $125 million. We have the option to renew the lease for an additional five years. The lease requires monthly payments of approximately $1 million starting in July 2015 through June 2025; however, rent expense will be recorded over the lease term commensurate with the right to control the space which began in July 2013.”

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